Overseas investors forecast bright skies beyond Brexit storm

Colin Finlayson

Uncertainty surrounding Brexit is showing no signs of deterring foreign investment in Glasgow and Edinburgh, according to a new report by property firm JLL.

Despite a lack of clarity surrounding Britain’s future trading relationship with the EU, JLL data shows that there are 18 office investment transactions currently under offer within the UK’s big 6 cities outside of London in the first quarter of 2019, compared to just six at the same point last year. Eighty per cent of the capital involved in those deals has come from overseas, with Asian and Middle Eastern investors being particularly active.

The findings come from JLL’s Big 6 report, which was launched in Edinburgh on Thursday 21 March. It looks at the performance of the six main commercial property markets outside of London – Edinburgh, Glasgow, Manchester, Leeds, Bristol and Birmingham.

The dominance of foreign capital within big 6 transactions is particularly acute within Edinburgh, where 81% of all deals in the city during 2018 were from overseas investors.

Along the M8, Glasgow was the second most active investment market in the big 6 after Manchester with £422 million transacted. Glasgow also topped the table for the number of transactions carried out, with 26 deals in 2018 – the same number as Bristol, Birmingham and Edinburgh combined.

Colin Finlayson,director – capital markets, JLL, said: “Overseas investors clearly still see relative value in the UK, and while a lack of quality stock led to there being 20% fewer deals compared with 2017, the average lot size has stayed consistent over the last five years at around £28 million. Given the tight supply across Edinburgh and Glasgow we saw yield compression in both markets over the year. We are also seeing UK institutions entering in to direct development to create their own prime investment stock.”

The UK’s big 6 office markets saw a record year of combined take-up last year, transacting 6.1 million sq ft of space, 9% higher than 2017.

Glasgow, for the first time ever, topped the one million mark transacting a total of 1.4 million sq ft of occupier deals more than double the city’s five and ten year averages. The city also saw the largest recorded deal in the regional markets with Barclay’s acquisition of 470,000 sq ft.

Edinburgh’s office market recorded a solid year of activity in 2018 with nearly 1 million sq ft of space let, but a lack of new Grade A space is set to leave the market severely short of accommodation in 2019, with just over 50,000 sq ft of available new build space under construction.

Mike Buchan, director – office agency, JLLsaid: “Glasgow recorded unprecedented take-up volumes last year which will be hard to repeat this year. Clearly there are concerns within the market over the uncertain economic environment in 2019 and how this could impact upon occupier’s decisions. However, the continued limited speculative development and overall supply should reward those developers and landlords who are brave enough to press on with their projects. Prime rents will continue to grow and crucially, cities such as Glasgow and Edinburgh will continue to attract and retain talent which will stimulate growth for occupiers.”

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